A Short Guide to FinTech in Malaysia

A Short Guide to FinTech in Malaysia

Prior to mid-2015, FinTech was hardly talked about in Malaysia. Sure, a select few discussed the subject, but there was little interest in financial technology. That is changing; FinTech has become the hot topic among Malaysian businessmen, especially as the sector paves the way forward for innovations in financial services. Business models pioneered by FinTech, such as debt financing, are great alternative solutions to gain capital for new and developing businesses. Interested in learning about FinTech in Malaysia? Here’s some information on how far the sector has come in the country.

Government support

In October 2016, the government, via Bank Negara Malaysia (Central Bank of Malaysia), issued the Financial Technology Regulatory Sandbox Framework. The framework set out requirements for participation in the FinTech sandbox. Financial institutions and FinTech companies will be allowed to experiment with FinTech solutions in a live controlled environment that are accompanied by the appropriate safeguards, for a limited period. Within this regulatory sandbox, FinTech is encouraged to develop together with Malaysian businesses, especially local SMEs – who have contributed to 33% of national gross domestic product (GDP).

The next month, in November 2016, the Securities Commission (SC) introduced 6 registered debt financing investment platform operators in Malaysia, including Funding Societies Malaysia. The announcement makes Malaysia the first country in Southeast Asia to regulate debt financing investment. The six companies are expected to start operations in 2017.

The decision to regulate this model was motivated by the need for more alternative financing for SME entrepreneurs, and also to narrow the funding gap in the SME sector. Ranjit Ajit Singh, the Executive Chairman of the SC, said during the opening of SCxSC Digital Finance Conference 2016 in Kuala Lumpur that the Malaysian SME sector has a funding gap of more than RM 80 billion. Singh added that FinTech can offer alternative solutions for the needs of Malaysian SMEs.

Is FinTech a threat?

Because FinTech is often labelled as disruptive, there is a perception that the FinTech ecosystem is a threat to traditional banks. It is not true. In many countries, banks are actively engaging and collaborating with FinTech companies. The same is happening in Malaysia.

CIMB, the second largest bank in Malaysia, has launched their incubation program known as Innochallenge, aimed to support ideation and creation of new FinTech solutions. Here’s another example: RHB has become the exclusive partner of Startupbootcamp within the Malaysian FinTech space. The collaboration will evaluate, fund, mentor, and organize hackathons in Kuala Lumpur to bring digital innovations to the banking market in Malaysia.

Instead of disrupting the banking sector, the collaboration between FinTech and banks is supporting the Malaysian market.

In such a short space of time, FinTech has taken an important position in the country. The sector is supported by the government and banks are now engaging with FinTech. There is a lot of hope that FinTech and its innovations will narrow the SME financing gap and provide alternative financing solutions for Malaysian entrepreneurs.

Related: Why FinTech is Rapidly Growing in Southeast Asia

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